Original-equipment manufacturers (OEMs) are aiming to expand their client bases and establish automotive manufacturing facilities in emerging market economies, owing to the current saturation in European and US automotive markets, says auditing and consulting firm KPMG.

KPMG industrial and automotive markets head Fred von Eckardstein says the pedestrian growth in traditional automotive markets has prompted OEMs to enter markets in developing and emerging economies – specifically China and India – which have the fastest-growing automotive markets globally.

He adds that Brazil, Russia, India, China and South Africa (Brics) countries are particularly important to OEMs, primarily because Brics countries are ahead of other emerging economies in terms of established infrastructure, and are suitable for hosting vehicle manufacturing facilities. Other destinations of interest to OEMs include Argentina, Nigeria and Egypt, which offer increasingly attractive investment opportunities.

Eckardstein points out that, owing to a lack of affordability, car ownership is not regarded as an essential need to many citizens in the Brics countries; nevertheless, needs do not necessarily correlate with wants, and the large majority of the Brics population still aspires to owning a car.

Despite increased access to integrated public transport and the advent of new mobility solutions, such as application-based taxi service Uber, the desire to own a car has not diminished, which Eckardstein attributes to the associated status and convenience.

“Cars are still regarded as status symbols. They are somewhat synonymous with personal success. Further, even with new solutions like Uber, car ownership still offers the most convenient way of travelling – perhaps not in peak hour, but during one’s free time – on weekends, during holidays or after work . . .”

Further, Brics countries also have comparatively resilient economies – particularly China and India – which is advantageous for OEMs.

Eckardstein points out that a strong economy will always contribute positively to new-car and second-hand car sales. Despite the slowdown in China, the country is still expecting a gross domestic product (GDP) growth rate above 6% for 2016, he adds, with India’s 2016 GDP growth forecast at 7.9%. The healthy GDP growth rates have led to these countries’ experiencing automotive market booms.

Although the South African economy is lagging behind its Brics counterparts, Eckardstein notes that the slump has stimulated growth in second-hand car sales. He explains that a combination of factors, including sluggish growth, the volatile exchange rate and higher interest rates have forced aspiring car owners to look for more cost-effective options. As a result, South Africa’s stock of low-mileage second-hand vehicles has become increasingly scarce.

However, he advises that, if the South African economy continues to contract, second-hand car sales will falter. Therefore, the current increase in second-hand car sales, although positive, is unsustainable, as the automotive sector, which accounts for about 140 000 jobs, will fall into decline if economic conditions continue to deteriorate.

Eckardstein states that electric vehicles are niche products, and that they will continue to be such products in the short- to medium-term because of three challenges – affordability, range and infrastructure.

These challenges are exacerbated in Africa and South America, as their economies are underdeveloped, the distances between cities are significant and existing infrastructure is insufficient.

“Currently, electric vehicles are expensive, they have a limited range, and very few countries are erecting charging stations and associated infrastructure,” Eckardstein says, adding that, without subsidies and incentives for citizens to buy these vehicles, he does not expect a dramatic boom in the short- to medium-term.

He does, however, expect electric vehicles to disrupt the automotive market once the aforementioned factors are addressed. Further, he notes that there are positive signs for aspiring electric-vehicle manufacturers. This includes a shift in consumer behaviour towards using greener products.

Big data and the development of new business models are also reshaping the automotive sector, Eckardstein says. “Internationally, there is increased focus on the digitisation of vehicles and the opportunities that this presents.”

He points out that this connectivity presents the possibility of a car manufacturer using connected vehicles to gather data pertaining to operational efficiency, fuel consumption, routes, radio preferences and even buying preferences. Automakers could, for example, use geolocation technology to determine which shops a specific driver frequents.

This data could theoretically also be used to improve driver experience, thereby ensuring loyalty to the brand. Other possibilities of increased connectivity and data transfer include integrating social media into the vehicles’ infotainment systems and the development of new manufacturing methods, materials or technology. “The potential is massive,” Eckardstein enthuses.

Adaptive business models have resulted from the changing automotive landscape, with initiatives to refine marketing strategies and create new products or services based on market research also under way.

Eckardstein says OEMs have to tailor their methods for emerging market economies, as the ideologies, labour and transport infrastructure of such economies are different. Products that are popular in traditional markets might not be as practical or popular in emerging markets, he concludes.